Indonesia's Central Bank to Hold Interest Rate at 4.25 Percent: Reuters Poll

Indonesia's central bank is widely expected to keep its key interest rate unchanged on Thursday (16/11) despite sluggish economic growth. (Reuters Photo/Iqro Rinaldi)

By : Nilufar Rizki and Shaloo Shrivastava | on 7:53 PM November 14, 2017
Category : Business, Economy

Jakarta/Bengaluru. Indonesia's central bank is widely expected to keep its key interest rate unchanged on Thursday (16/11) despite sluggish economic growth, as it prioritizes stability before an anticipated hike in US rates.

All 20 analysts polled by Reuters forecast that Bank Indonesia (BI), which surprised with rate cuts in August and September, will leave the seven-day reverse repurchase rate at 4.25 percent for a second month.

While disappointing growth data puts some pressure on the central bank to cut again, economists say the higher priority has to be stability for the rupiah, which recently has weakened.

On Nov. 6, Indonesia reported annual growth in the third quarter of 5.06 percent. That was higher than the 5.01 percent level in the previous two quarters, but below market expectations of 5.13 percent as consumption remained sluggish.

Consumption, which makes up around half of Indonesian economy, grew at a slightly slower pace compared to the previous three-month period.

"Despite this data, we continue to believe that BI's rate-cutting cycle is over," Nomura said after the GDP numbers were released. "While disappointing growth may prompt it to think about further policy rate cuts, rising external risks will be a bigger constraint."

The rate cuts in August and September — a combined 50 basis points — took the total of trims since the beginning of 2016 to two percentage points.

Slack Loan Growth

In making the cuts, BI took advantage of low inflation. But economists say it has not been able to get them to prop up bank lending or consumption.

That, in turn, has made it hard for Indonesia to get its growth rate to well above five percent.

In September, annual loan growth eased to 7.86 percent from 8.26 percent in August. The bank regulator's target for this year is 10 percent.

The rupiah, which had moved little for much of this year, has weakened nearly three percent since hitting a 2017 peak of 13,135 against the dollar on Sept. 11.

One factor behind the weakening is the expectation that the Federal Reserve in December will hike US interest rates for the third time this year.

BI's last policy meeting of the year will end on Dec. 14, just hours after the Fed announces the decisions of its final meeting of 2017.

After its October meeting, the Indonesian central bank said it would maintain a "neutral" stance.

Reuters

Additional reporting and writing by Fransiska Nangoy; editing by Richard Borsuk

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